The banking industry in Africa is experiencing rapid innovation at the hands of new-age non-banking entrants as well as some incumbent banks. But what causes these players, especially the incumbent banks among them, to innovate successfully where so many others have failed? James Buckley, from Infosys Finacle, looks into this in more detail.
Innovation leadership in banking belies the hype and investment associated with it. The 2019 Innovation in Retail Banking report presented by Efma and Infosys, which surveyed more than 300 banking leaders globally, states that only 14% of banks think they are innovation pioneers and 35% believe they are fast followers.
It is no coincidence that the respondents who rate themselves as leaders also lead Digital Transformation in their markets. The research finds that banks that are able to innovate effectively are better at leveraging data and technology and also are better at Digital Transformation.
Not surprisingly, their organisations are very customer-centric, with a clear idea of customer goals and how to achieve them. Leaders were also found to be measuring their Digital Transformation progress effectively while most mainstream players and laggards reported a lack of definite KPIs to measure the success of their transformation efforts. A huge factor in their success is that the banks have also transformed their organisation and culture to suit the requirements of the digital age.
These expectations are largely borne out in a scan of Africa’s most innovative banks, which have clearly taken the lead in transforming their systems and technologies, overtaking not only domestic banks but also those in other countries.
A number of factors underscore the need and urgency for transformation – the first is the consumers, who are heavy users of online, mobile devices and applications and display a rising preference for digital channels. Second is the relentless pressure from digital players, such as mobile money transfer companies and FinTech, which are attracting such consumers with their digital, innovative offerings.
And third, African banks also need to transform in order to be able to adopt a platform business model and ecosystem banking once Open Banking arrives in the region.
Unlike typically risk-averse financial institutions, African banks – even the big ones – are willing to experiment early on with new technologies. The innovative Standard Bank, the continent’s largest, is shifting production workloads, important core banking software and even mission-critical applications to the AWS cloud to become Africa’s ‘first bank in the cloud’.
Kenya’s Equity Bank is another example of transformation success, having introduced a wide range of banking products on digital channels, such as the Equitel mobile banking service. The bank has also digitised entire customer journeys, such as customer onboarding.
Pan-African Ecobank is planning to transform all its businesses with digital technology; its digital strategy is to deploy in-house innovation to meet customer expectations and also leverage alliances with global financial service providers to offer various corporate and retail banking solutions.
African banking innovators are very customer oriented. For example, Discovery Bank offers an innovative insurance service in South Africa called Discovery Life, which is personalised to a customer’s financial health and behaviour.
Using real-time financial data, Discovery Life segments risk more granularly in each socioeconomic segment, to reward customers for demonstrating healthy financial behaviour. Since Africa is still significantly unbanked, many institutions are directing their innovation efforts at bringing more people into their fold. One is the Commercial Bank of Africa, which has launched a mobile bank account named M-Shwari in partnership with mobile money provider, M-Pesa and telecom company, Safaricom. For many Africans, M-Shwari is the gateway to formal banking.
Just like in the Efma Infosys survey, the innovation leaders in African banking have transformed their organisations and cultures as part of Digital Transformation.
They have succeeded largely because their leadership is committed to driving this change. Standard Bank is among these banks; the bank believes in empowering its employees, which not only creates a happy and loyal workforce but also superior interactions for its customers.
The bank believes that empowering and educating the people who deliver the bank’s solutions to the clients – the bank’s workforce – is one of the most critical factors in ensuring exceptional experience.
The African banking market is exciting but does have its shortfalls. Open Banking is yet to start in any meaningful way and there doesn’t seem to be any push from either industry consortia or banking regulators, the two agencies driving Open Banking in other parts of the world.
The cost of risk is the second highest globally, amid inadequate risk management practices and a shortage of credit bureaus. A related problem is security, and banks adopting new technologies will have to ensure their defenses are strong enough to withstand the ever-increasing threat of cyberattacks.
Africa’s banks also suffer from high – and worsening – cost to asset ratios, and while cost to income ratios are decent, the reason is high margins rather than low costs. Banks need to improve cost efficiency in the back-office, and productivity in the front-office. Many of these challenges can be addressed with the help of digital transformation and innovation. Luckily, African banks are capable of both.
